Capital Equipment News January 2019

EDITOR'S COMMENT

IS THE TIDE TURNING?

T hat 2018 was a tough year for the industry is no overstatement – the root of it all was an economy that took a few hard knocks, especially during the third quarter of the year. The technical recession was proof enough that things were tough. However, the local capital equipment market surprisingly defied the odds to even record some slight growth figures. The general narrative is that construction and mining are in the doldrums, but for me, the capital equipment market is always a good measure of the true state of affairs in these sectors. For example, if commercial vehicle sales are anything to go by, 2018 was a year of growth, though slight, in the face of lethargic economic growth, high interest rates, which burdened industries that rely heavily on debt financing, and policy

uncertainty, especially regarding the Mining Charter. As you will see in this edition’s Interview section, Raimo Lehtiö, MD of Scania South Africa, says from a total volumes point of view, 2018 was actually a little bit better than expected for the trucking sector. The market was expected to dip slightly compared with 2017, but surprisingly it recorded growth in the 7% region. The reason might be the fact that in 2017 several truck owners de-fleeted to reduce the sizes of their fleets in response to the tough business conditions at the time. Then in 2018 there was an unexpected slight market resurgence, which forced them to purchase new trucks to fulfil their new contracts. Elsewhere, the Construction and Mining Equipment Suppliers’ Association (CONMESA) also reported a continuous growth cycle in several consecutive quarters. The growth trajectory started way back in 2017 where construction and mining equipment sales moved strongly upwards to break a three-year downward cycle that had gripped the industry since the second quarter of 2014. Figures released by CONMESA at the start of 2018 showed that 5 614 new units had been sold during 2017, marking a healthy 18,3% increase over the previous year’s results. Until then, the decline in sales had seen the number of units sold dwindle from 7 250 units in 2013 to a low of 4 747 in 2016. The cycle continued well into the first quarter of 2018, with sales of new equipment reaching levels last seen in the first quarter of 2015. A total of 1 542 units were sold during the period, an improvement of nearly 100 machines during the same period in 2017. It also extended the trend that had seen equipment sales inch upwards since the beginning of 2017. Looking ahead, what are the prospects for 2019? In the truck industry, experts believe that while 2018 was a bit tough, 2019 will stabilise, especially considering that it’s an election year in South Africa. Bear in mind that SA accounts for more than half of the total truck sales in the region. Generally, there is a wait-and-see approach whenever an election is looming as the uncertainty

creates a lot of risk for any large capital investments. However, it is also common practice for incumbent governments to splash a bit of cash, especially into infrastructure development projects, during the run-up to elections. However, these are not sustainable projects, but rather short-term developments aimed more at gaining some public confidence than anything else. Truck sales volumes are expected to be slightly lower – probably around 5% down compared with 2018. The first half of the year is expected to be a bit slow due to the uncertainty around the elections. Like in 2018, the second half of the year will be crucial for the truck market. Normally in South Africa, the first half of the year constitutes 40% of the total annual market, while the other 60% habitually comes from the second half. I expect that the used vehicle market will be a lot higher than in 2018, especially with more trade-ins expected this year. On the construction equipment front, we are still not seeing any significant infrastructural projects in the form of headline projects and this means that the large and medium construction companies are not buying new machines to the extent they used to previously. However, the industry is somehow optimistic that construction equipment sales will improve during the latter part of the year as infrastructure projects are launched close to election time. The building and construction sector is probably the most cyclical and the most volatile at this stage. From current depressed levels the scale of a cyclical upturn could also be dramatic. Of note is that after showing little to no growth for 10 years, compelling value in the building and construction sector is starting to show positive signs of growth again. The Afrimat Construction Index (ACI) for the third quarter of 2018 showed that the index level recorded in the third quarter of the year increased by almost 4% over the second quarter figure, following an impressive gain of almost 7% between April and June 2018. The overall sentiment is that the tide may be turning. b

Munesu Shoko – Editor

capnews@crown.co.za

@CapEquipNews

CAPITAL EQUIPMENT NEWS JANUARY 2019 2